AGI Markets Monitor: OPEC reaches oil deal, Mozambique
defaults, and Nigeria manages its exchange rate
February 2017 update
The Africa Growth Initiative (AGI) Markets Monitor aims to provide up-to-date financial market and foreign
exchange analysis for Africa watchers with a wide range of economic, business, and financial interests in the
continent. Following the 2016 updates, the February 2017 update continues tracking the diverse performances of
African financial and foreign exchange markets through the end of 2016. We offer our main findings on key
recent events influencing the region’s economies: OPEC’s deal on crude oil output, Mozambique’s bond
payment default, and Nigeria’s support of the naira.
Rise in fuel and metal prices boosted commodity prices in 2016
In 2016, commodity prices rose by 38.1 percent, according to the IMF’s all commodity price index data. The
main drivers of the index’s growth were increasing fuel and metal prices, which grew by 66.1 percent and 35.8
percent, respectively, over the period. Oil prices generally climbed throughout the year, from $29.92 per
barrel in January 2016 to $52.61 per barrel in December 2016. For oil-exporting countries that saw their fiscal
balances deteriorate during the price slump in 2014 and 2015 (e.g., Angola, Cameroon, Chad, Gabon, Nigeria,
and the Republic of the Congo) the gradual rise in oil prices could provide a modest boost to government
revenues as they seek to diversify and acquire more reliable sources of fiscal revenue.
On November 30, 2016, the Organization of Petroleum Exporting Countries (OPEC) reached a deal to cut
its members’ crude oil output by 1.2 million barrels per day (mbd) to 32.5 million mbd starting in January
2017 for six months (with the possibility for extension). Nigeria and Libya were exempted from the
reductions, while other members of OPEC, specifically Saudi Arabia, Iraq, the United Arab Emirates, and
Kuwait, will assume the largest cuts of the group. A meeting on December 10 resulted in additional
reductions totaling 0.6 mbd by Saudi Arabia, Russia (a non-OPEC member), and 10 other non-OPEC
countries. While this agreement indicates that oil prices could continue to rally in the near term, the degree to
which prices will rise (or fall) in 2017 will be affected by compliance by OPEC members, Nigeria and Libya’s
production levels, and a potential rise in shale production.
The IMF’s metal price index also increased in 2016—led by base metals iron ore (exported by Liberia, Sierra
Leone, and South Africa), copper (exported by the Democratic Republic of the Congo and Zambia), zinc, tin,
lead, nickel, and aluminum—due to robust demand from China’s construction industry and expectations of
higher demand from the U.S. for infrastructure projects following the 2016 presidential election. Precious
metals have also increased throughout 2016, although prices for gold (exported by Burkina Faso, Ghana,
Mali, South Africa, and Tanzania) fell following the U.S. presidential election on the expectation of U.S.
increased fiscal spending. Agricultural commodities have grown by 7.3 percent in 2016, although gains were
not consistent across products and varied over the year. For example, in the first half of 2016, the prices of
sugar and pork increased substantially, while barley, oranges, palm oil, and soybeans also made gains. In the
second half of the year, however, grains, pork, soybeans, and cocoa experienced major declines in their prices,
leading ultimately to the modest gains for agricultural goods in 2016.
Figure 1. Commodity price indices
(January 2000 to December 2016).
300
250
200
150
100
50
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
All Commodity Price Index
Fuel (Energy) Index
Non-Fuel Price Index
Source: IMF, Primary Commodity Price System.
Note: Index (2005 = 100).
Figure 2. Commodity price indices
(in January and December 2016).
160
150
140
130
120
110
100
90
80
70
60
50
All
Fuel (Energy) Non-Fuel Metals Price Agricultural
Industrial
Food and
Commodity
Index
Price Index
Index
Raw
Inputs Price Beverage
Price Index
Materials
Index
Price Index
Index
Jan-16 Dec-16
Source: IMF, Primary Commodity Price System.
Note: Index (2005 = 100).
Low growth and currency depreciations led to African equity market
downturns
The MSCI Emerging Markets Index increased by 11.3 percent in dollar terms over the period January to
December 2016, while the corresponding African frontier markets index (which excludes South Africa) did
not fare as well, declining by 7.4 percent over the year (see Figures 3 and 4). Currency depreciations as well as
low economic growth experienced by some of the continent’s major economies contributed to the
underperformance of several stock exchanges. The Nigerian and Ghanaian equity indices faced the most
significant losses, 37.7 percent and 23.5 percent in dollar terms, respectively, with both countries’ stock
exchanges decreasing as the value of their currencies declined against the dollar. South Africa’s equity index,
on the other hand, grew in dollar terms by 11.0 percent in 2016 as its currency strengthened against the dollar,
and it avoided potential credit rating downgrades during the year. Kenya’s and the West African Economic
and Monetary Union’s BRVM equity indices experienced modest declines over the period. Despite Kenya’s
relatively high economic growth in 2016, foreign investors’ concerns over the potential for violence
surrounding the upcoming August 2017 elections led to the Nairobi Stock Exchange’s decline in 2016.
Figure 3. Returns for select equity market
indices (January to December 2016).
-14.2%
Ghana
-23.5%
-2.7%
-2.8%
Kenya
Nigeria
-1.5%
-37.7%
-1.5%
South Africa
11.0%
-0.4%
-3.4%
WAEMU - BRVM Comp Share Index
MSCI Emerging Markets Index
11.3%
MSCI Emerging Frontier Markets in Africa
(excluding S. Africa) Index
-50%
-7.4%
-40%
Local currency returns
-30%
-20%
-10%
0%
10%
20%
Dollar returns
Source: Bloomberg Finance L.P.
Note: Total returns for the period are calculated assuming that dividends are reinvested in the index at
the spot price. Returns for the MSCI Indices are in U.S. dollars.
Figure 4. Price changes for select equity market
indices (January to December 2016).
120
115
110
8.6%
105
100
-3.9%
-4.1%
-6.2%
-8.5%
95
90
-15.3%
85
80
75
70
Ghana
Kenya
Nigeria
South Africa
MSCI Emerging Markets
WAEMU - BRVM Comp Share Index
Source: Bloomberg Finance L.P.
Note: Index (January 1, 2016 = 100). Equity indices are denoted in local currency terms, except for the MSCI
Emerging Markets Index which is denoted in U.S. dollars. Percentages listed are total returns calculated using
only price change for the period.
2016 saw declines for African and global bond spreads
African and global emerging market bond spreads fell by approximately 152 and 81 basis points, respectively,
in 2016, suggesting that the perceived relative riskiness of African and global emerging market bonds
decreased considerably over the course of the year (see Figure 5). The gap between the two spreads also
narrowed. In comparison to the U.S. 10-year Treasury bond rate, the African bond index’s yield was 415 basis
points higher at the end of 2016, down from 567 in early January, while the global bond index’s yield was only
365 basis points higher, down from 446 at the beginning of the year. Among a select group of African
countries for which bond spread data exists, nearly all experienced a decline in bond spreads during 2016.
The exception was Mozambique, which saw its bond spread climb steeply by 799 basis points, reflecting
extremely weak market confidence following recent issues regarding the country’s debt (see Figures 6 and 7).
Figure 5. EMBI Global spreads in basis points
(January to December 2016).
800
700
600
500
415
365
400
300
200
100
0
Global (Overall)
Africa
Source: Bloomberg Finance L.P., J.P. Morgan Emerging Market Bond Index Global (EMBI Global).
Note: The EMBI Global includes only USD-denominated emerging markets sovereign bonds and uses a
traditional, market capitalization weighted method for country allocation. The Africa sovereign spread includes
coverage of Angola, Côte d'Ivoire, Egypt, Gabon, Ghana, Kenya, Morocco, Mozambique, Namibia, Nigeria,
Senegal, South Africa, and Zambia.
Figure 6. Change in EMBI Global spreads in
basis points (January to December 2016).
Mozambique
799
Cote d'Ivoire
-73
Namibia
-73
Kenya
-138
Senegal
-179
Nigeria
-188
Gabon
-246
South Africa
-247
Zambia
Ghana
-600
-356
-384
-400
-200
0
200
400
600
800
1000
Source: Bloomberg Finance L.P., J.P. Morgan Emerging Market Bond Index Global (EMBI Global).
Mozambique’s economic crisis—which was exacerbated by a withdrawal of IMF and other donors’ financing
following the revelation of $1.4 billion in secret government loans last year—continues to worsen. In October
2016, the Mozambican government announced that it would not be able to service its external commercial
loans. Instead, it would work with creditors to restructure its debt in the hopes of reaching an agreement by
the end of the year—although no formal talks were arranged at the time. On January 18, 2017, the
government failed to remit a coupon payment of approximately $60 million for its $727 million in eurobonds
that it issued in March 2016. Although the government was afforded a 15-day grace period, it still failed to
settle the payment. According to Bloomberg, some observers argue that the government strategically
defaulted to compel bondholders to negotiate a restructuring of the debt. As a result of the missed payment,
Standard & Poor’s (S&P) downgraded Mozambique’s credit rating to “selective default,” (see Table 1).
Bondholders argue that they will not enter into formal talks with the government to restructure the debt until
it commits to an IMF program and an independent audit of its debt. The IMF has equally called for an
investigation into government borrowing before it will provide additional assistance to Mozambique. A report
by auditing firm Kroll on the government’s debts is expected to be released in February 2017.
Figure 7. Sovereign spreads v. credit rating
scores.
2500
Mozambique
2000
Spreads (basis points)
1500
1000
Kenya
Zambia
Ghana
Gabon
Nigeria
Senegal
Namibia
500
South Africa
0
7
6
5
4
3
2
1
Credit rating average score
Source: Bloomberg Finance L.P., J.P. Morgan EMBI Global.
Note: Spreads are as of December 30, 2016. Credit rating average scores refer to the average ratings of Fitch,
Moody, and S&P ratings. Numerical values correspond to the following credit rating categories: 7 = A, 6 = BBB/Baa,
5 = BB/Ba, 4 = B, 3 = CCC/Caa, 2 = CC/Ca, and 1 = C.
Table 1. Sovereign credit ratings and outlooks for select African
economies (Updated: January 20, 2017).
S&P
Country
Ethiopia
Gabon
Fitch
Credit Rating
B
B
Outlook
Stable
Stable
Ghana
B-
Kenya
B+
Mozambique
Namibia
Nigeria
Senegal
South Africa
Zambia
Moody’s
Credit Rating
B
B+
Outlook
Stable
Negative
Credit Rating
B1
B1
Outlook
Stable
Negative
Stable
B
Negative
B3
Stable
Stable
B+
Negative
B1
Stable
SD
Not Rated
Not rated
Not Rated
CC
BBB-
Not Rated
Negative
Caa3
Baa3
Negative
Negative
B
Stable
B+
Stable
B1
Stable
B+
BBB-
Stable
Negative
Not Rated
BBB-
Not Rated
Negative
B1
Baa2
Positive
Negative
B
Negative
B
Negative
B3
Negative
Source: Bloomberg Finance L.P., Standard & Poor’s, Fitch, and Moody’s.
South Africa’s rand appreciated as the Egyptian pound tumbled
South Africa’s rand, Zambia’s kwacha, and Somalia’s shilling were Africa’s best-performing currencies in
2016, with spot returns increasing by 13.2 percent, 11.1 percent, and 8.9 percent for the year, respectively (see
Figure 8). Despite the rand’s gains in 2016, it experienced some volatility in response to the U.K.’s Brexit vote
to leave the European Union, the election of U.S. President Donald Trump, and several sovereign credit
rating reviews, as seen in Figure 9. In Zambia, recovering copper prices and monetary policy tightening
helped bolster the exchange rate after 2015 saw a massive depreciation in the kwacha. Somalia’s shilling also
strengthened against the dollar in 2016 due largely to remittance inflows. The dollarized economy plans to
print its own currency in early 2017.
At the same time, spot returns for Mozambique’s new metical, Nigeria’s naira, and Egypt’s pound declined in
2016 by 32.8 percent, 36.8 percent, and 56.8 percent, respectively. The Mozambican metical depreciated by
approximately 40 percent against the dollar in the first nine months of 2016 due to market and structural
factors, but after monetary policy tightening in October 2016, it appreciated by nearly 8 percent, indicating a
potential rebalancing of the foreign exchange market. In Nigeria, the naira fell by almost 40 percent following
the end of its peg to the dollar in June 2016, however, observers say the government is still managing the
currency at approximately 315 naira per dollar while the black market rate is 493 naira per dollar—
approximately 60 percent more than the official rate. Furthermore, the marked devaluation of the Egyptian
pound occurred in early November when Egypt’s central bank floated its currency to attract foreign capital
and meet the requirements for a $12-billion IMF loan.
Figure 8. Spot returns of select African currencies
(%, January 1, 2016 to December 30, 2016).
South African Rand
Zambian Kwacha
Somali Shilling
Botswana Pula
Eritrean Nakfa
Liberian Dollar
Kenyan Shilling
Mauritian Rupee
Djiboutian Franc
Tanzanian Shilling
Ethiopian Birr
Ugandan Shilling
Gambian Dalasi
Malawian Kwacha
Rwandan Franc
Ghanaian Cedi
Guinean Franc
Angolan Kwanza
Congolese Franc
Sierra Leone Leone
Mozambican New Metical
Nigerian Naira
Egyptian Pound
13.2
11.1
8.9
5.1
2.4
0.6
-0.2
-0.4
-0.7
-1.7
-5.1
-6.2
-8.0
-8.2
-9.0
-9.1
-17.7
-19.6
-20.6
-27.3
-32.8
-36.8
-56.8
-60
Source: Bloomberg Finance L.P.
-55
-50
-45
-40
-35
-30
-25
-20
-15
-10
-5
0
5
10
15
Figure 9. Movements of select African
currencies against the USD (January to
December 2016).
30%
20%
12.6%
10%
-0.2%
0%
-10%
-10.2%
-20%
-30%
-36.8%
-40%
-50%
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16
Kenyan shilling
Ghanaian cedi
Nigerian naira
South African rand
Source: Bloomberg Finance L.P.
Note: LCU/USD (LCU = local currency unit). A positive move indicates currency strengthening against the
dollar, while a negative move indicates currency weakening against the dollar.